SOURCE: Assisted Living Concepts

February 27, 2007 20:49 ET

Assisted Living Concepts, Inc. Announces Strong 2006 Fourth Quarter and Year End Financial Results; Outlines Expansion Plans

MILWAUKEE, WI -- (MARKET WIRE) -- February 27, 2007 --


Fourth Quarter Highlights:

--  Net income up 24.1% from prior year period
--  Net income from continuing operations excluding one time charges up
    32.4% from prior year period
--  Revenue increase of 5.0% over prior year period
--  Pro forma revenue increase of 6.7% over prior year period
--  Pro forma average daily census, private pay census and average revenue
    per occupied unit day up 1.6%, 4.7% and 5.6%, respectively
--  $50 million expansion plan of 400 units
--  Pro forma adjusted EBITDAR margins of 30.2%
    
Assisted Living Concepts, Inc. ("ALC") (NYSE: ALC) reported net income from continuing operations (excluding one-time charges) of $5.0 million in the 2006 fourth quarter as compared to $3.8 million in the 2005 fourth quarter. Net income from continuing operations for the 2006 fourth quarter was $4.6 million compared to $3.8 million in the 2005 fourth quarter. Net income for the 2006 fourth quarter was $4.6 million as compared to $3.7 million in 2005.

Net income from continuing operations (excluding one-time charges and a non-cash charge) was $16.4 million for the 2006 full year as compared to $12.7 million in 2005. Net income from continuing operations for 2006 was $10.5 million compared to $12.7 million in the prior year. Net income for 2006 was $9.0 million as compared to $12.3 million in 2005.

One-time charges included transaction fees of $0.4 million and $3.9 million for the quarter and year ended December 31, 2006, respectively (net of income tax benefits of $0.3 million and $0.5 million in the quarter and year, respectively), related to legal, audit and other professional fees associated with the November 10, 2006 separation of ALC from Extendicare Inc. and a non-cash charge of $1.9 million (net of an income tax benefit of $1.2 million) recorded in 2006 from an impaired property identified prior to the separation. See attached pro forma and non-GAAP reconciliation tables.

"We are pleased with the results of our fourth quarter," commented Laurie Bebo, President and Chief Executive Officer of Assisted Living Concepts, Inc. "Despite the fact that historically our fourth quarter has not been our strongest, our team made significant progress toward our goals of improving private pay mix while increasing occupancy levels. Adjusted EBITDA and adjusted EBITDAR margins were particularly strong as we continue to contain costs and improve private pay mix."

Until the separation, ALC was a wholly owned subsidiary of Extendicare (TSX: EXE). The financial results reported until that time reflect the combined historical financial statements of the assisted living operations of Extendicare in the United States. As of December 31, 2006, ALC operated 207 assisted living residences representing 8,302 units.

Certain pro forma adjustments are necessary to reflect the ongoing operations of ALC following the separation. These adjustments add ALC's results of operations for the month of January, 2005 which was prior to Extendicare's purchase of ALC and remove data related to assets and liabilities that were not transferred to ALC in connection with the separation, including: (i) three assisted living facilities (168 units) that were closed in the three months ended March 31, 2006 and (ii) two free-standing assisted living facilities (141 units) and another 129 assisted living units contained in skilled nursing facilities that were retained by Extendicare.

Prior to the separation, the basic average number of shares of common stock was determined by adding the number of outstanding Subordinate Voting Shares and the number of Multiple Voting shares of Extendicare upon completion of the separation which was equal to the number of outstanding shares of Class A and Class B common stock of ALC. For purposes of determining the diluted weighted average number of shares, the Multiple Voting Shares were deemed to have been converted into Subordinated Voting Shares at the 1 to 1.075 conversion rate applicable to the Class B common stock. This results in an additional 0.9 million shares included in the fully diluted weighted average number of shares outstanding in both the quarter and year ended December 31, 2006. After the separation, the basic weighted average number of shares of common stock was based upon the number of shares of Class A and Class B common stock of ALC outstanding. For purposes of determining the diluted weighted average number of shares, the Class B shares were deemed to have been converted into Class A shares at the 1 to 1.075 conversion rate applicable to the Class B common stock.

Pro forma combined financial information is included for informational purposes and does not purport to reflect the results of operations or financial position of ALC that would have occurred had ALC operated as a separate independent company in the periods presented. The pro forma financial statements do not reflect the additional cost of being a publicly listed company nor do they remove any interest expense related to the capital structure prior to the separation.

On a pro forma basis, net income from continuing operations for the 2006 fourth quarter (excluding one time non-recurring charges and the non-cash impairment charge) was $5.0 million compared to $3.8 million in the 2005 fourth quarter. ALC reported pro forma net income from continuing operations (excluding non-recurring charges and the non-cash impairment charge) for 2006 of $16.3 million compared to $12.4 million in 2005. See attached tables for pro forma calculations, assumptions, and reconciliation to net income.

On a fully diluted basis, pro forma earnings per share from continuing operations (excluding non-recurring charges and the non-cash impairment charge) were $0.07 and $0.05 in the quarters ended December 31, 2006 and 2005, respectively, and $0.23 and $0.18 for the years ended December 31, 2006 and 2005, respectively.

On a fully diluted basis, earnings per share from continuing operations were $0.07 and $0.05 in the fourth quarters ended December 31, 2006 and 2005, respectively, and $0.15 and $0.18 for the year ended December 31, 2006 and 2005, respectively. On a fully diluted basis, earnings per share were $0.07 and $0.05 in the fourth quarters ended December 31, 2006 and 2005, respectively, and $0.13 and $0.18 for the years ended December 31, 2006 and 2005, respectively.

Quarters ended December 31, 2006 and 2005

Revenue from continuing operations increased $2.8 million or 5.0% to $58.6 million during the 2006 fourth quarter from $55.8 million in the 2005 fourth quarter and decreased $0.3 million or 0.5% from the third quarter of 2006.

Increased revenue from the 2005 period was primarily due to a higher average daily revenue rate as a result of rate increases and ALC's efforts to improve private pay mix, partially offset by the fewer number of census days that properties retained by Extendicare (270 units) were counted in the 2006 period. The revenue decrease from the third quarter was primarily due to the differential in days that the 270 units retained by Extendicare were counted in the period. Revenue in the third quarter of 2006 and the fourth quarter of 2005 included revenues of $1.3 million and $1.4 million, respectively, associated with the 270 units retained by Extendicare. Because these properties were only included in ALC's fourth quarter 2006 through November 10, 2006 (or 41 days of the 2006 fourth quarter), they added only $0.5 million of revenues in that period. Revenue in the 2006 and 2005 fourth quarters and the 2006 third quarter were aided by $0.1 million, $0.7 million and $0.2 million, respectively, associated with the amortization of below market leases from Extendicare's 2005 acquisition of ALC. Amortization of the below market leases will end in January 2007. In addition, the 2006 third and fourth quarters include $0.2 million of revenue from the current tenant of ALC's recently purchased corporate office. ALC is expected to continue to collect rent on the corporate office until June 2007 at which point ALC will take occupancy.

Adjusted EBITDA was $13.9 million in the 2006 fourth quarter compared to $12.6 million in the 2005 fourth quarter and $12.7 million in the 2006 third quarter. As a percent of revenue, adjusted EBITDA for the 2006 fourth quarter increased to 23.7% compared to 22.6% in the 2005 fourth quarter and 21.7% in the 2006 third quarter.

Compared to the fourth quarter of 2005, in addition to the revenue impacts describe above, adjusted EBITDA was impacted by favorable experience in our self-insurance programs and adjustments to various reserves of approximately $1.6 million, offset by an increase in general and administrative expense of $1.7 million related to ongoing expenses of the separation, including increased salaries and benefits, informational systems costs, accounting related expenses, and charges for services provided by Extendicare.

Adjusted EBITDAR was $17.6 million in the 2006 fourth quarter compared to $16.1 million in the 2005 fourth quarter and $16.3 in the 2006 third quarter. As a percent of revenue, adjusted EBITDAR for the 2006 fourth quarter increased to 30.0% compared to 28.8 % in the 2005 fourth quarter and 27.7% in the 2006 third quarter. Rental expense remained substantially unchanged in the 2005 and 2006 periods. Adjusted EBITDAR increased for the same reasons as explained in adjusted EBITDA above.

See attached tables for definitions of adjusted EBITDA and adjusted EBITDAR and reconciliations of net income to adjusted EBITDA and adjusted EBITDAR.

Pro Forma Quarters ended December 31, 2006 and 2005

Pro forma revenue from continuing operations increased $3.7 million, or 6.7%, during the 2006 fourth quarter to $58.1 million from $54.4 million in the 2005 fourth quarter. Sequentially, pro forma revenue from continuing operations increased $0.5 million, or 0.9%, during the 2006 fourth quarter from $57.5 million in the 2006 third quarter. Revenue in the 2006 and 2005 fourth quarters and the 2006 third quarter were aided by $0.1 million, $0.7 million and $0.2 million, respectively, associated with the amortization of below market leases from Extendicare's 2005 acquisition of ALC. Amortization of the below market leases will end in January 2007. In addition, the 2006 third and fourth quarters included $0.2 million of revenue from leasing ALC's recently purchased corporate office. ALC is expected to continue to collect rent on the corporate office until June 2007 at which point ALC will take occupancy.

Pro forma adjusted EBITDA was $13.8 million in the 2006 fourth quarter compared to $12.4 million in the 2005 fourth quarter and $12.5 million in the 2006 third quarter. As a percent of revenue, pro forma adjusted EBITDA for the 2006 fourth quarter increased to 23.8% compared to 22.8% in the 2005 fourth quarter and 21.7% in the 2006 third quarter. See explanation in quarterly data above for adjusted EBITDA changes as pro forma adjustments did not materially effect adjusted EBITDA results.

Pro forma adjusted EBITDAR was $17.5 million in the 2006 fourth quarter compared to $15.9 million in the 2005 fourth quarter. As a percent of revenue, pro forma adjusted EBITDAR for the 2006 fourth quarter increased to 30.2% compared to 29.2% in the 2005 fourth quarter. See explanation in quarterly data above for adjusted EBITDAR changes as pro forma adjustments did not materially effect adjusted EBITDAR results.

See attached tables for definitions of adjusted EBITDA and adjusted EBITDAR and reconciliations of net income to pro forma net income and pro forma net income to pro forma adjusted EBITDA and pro forma adjusted EBITDAR.

On a pro forma basis, ALC's average daily revenue rate per unit increased 5.6% to $87.48 in the 2006 fourth quarter from $82.81 in the 2005 fourth quarter and declined 0.2% from $87.63 in the 2006 third quarter. On a pro forma basis, ALC's overall average occupied units of private pay residents and Medicaid residents was 7,168 in the 2006 fourth quarter, an increase of 1.6% from 7,055 in the 2005 fourth quarter and an increase of 1.0% from 7,098 in the 2006 third quarter. On a pro forma basis, private pay residents average occupied units increased by 4.7% while Medicaid residents average occupied units decreased by 5.6% as compared to the 2005 fourth quarter and, on a pro forma basis, private pay residents average occupied units increased by 2.0% while Medicaid residents average occupied units decreased by 1.5% as compared to the 2006 third quarter. The decline in the number of Medicaid residents is consistent with ALC's strategy to move towards a higher mix of private pay residents. As part of this strategy, we declined to renew 14 Medicaid contracts in early 2007. During the 2006 fourth quarter the pro forma occupancy percentage increased to 86.4% from 85.8% in the 2006 third quarter and 85.9% in the 2005 fourth quarter.

Years ended December 31, 2006 and 2005

Revenue from continuing operations increased by $26.2 million, or 12.8%, to $231.1 million during the 2006 year from $204.9 million in 2005.

Increased revenue from the 2005 year was primarily due to increased average daily revenue rate as a result of rate increases and ALC's efforts to improve its private pay mix. Because ALC was acquired by Extendicare on January 31, 2005, the data for 2005 does not include revenues of $15.1 million related to ALC operations in January 2005. After the separation, data for 2006 does not include properties retained by Extendicare which resulted in a $0.9 million revenue decrease from the 2005 period. Revenue in 2006 and 2005 was aided by $1.2 million and $2.5 million, respectively, associated with the amortization of below market leases from Extendicare's 2005 acquisition of ALC. Amortization of the below market leases will end in January 2007. In addition, the 2006 year includes $0.4 million of revenue from leasing ALC's recently purchased corporate office. ALC is expected to continue to collect rent on the corporate office until June 2007. Adjusting 2005 and 2006 revenue to reflect the addition of the January 2005 revenue, effects of residences retained by EHSI, elimination of the amortization of below market leases, and rental income associated with the corporate office, revenue on an adjusted basis increased by 6.0% in 2006 over 2005. Other revenue increases in 2006 resulted from three newly constructed residences opened in 2005 and 2006 (approximately 150 units), additions to four existing facilities (112 units), and an increase in average rates, partially offset by lower occupancy percentages in the beginning of 2006.

Adjusted EBITDA was $52.7 million for 2006 compared to $47.2 million in 2005. As a percent of revenue, adjusted EBITDA for 2006 declined to 22.8% compared to 23.0% in 2005.

Increased adjusted EBITDA was primarily due to the revenue increases described above and an additional month of adjusted EBITDA from the full year impact of the acquisition of ALC, partially offset by ongoing general and administrative expenses resulting from increases in salaries and benefits, informational systems costs, accounting related services, charges for services provided by Extendicare, and other items related to ALC operating as an independent company for a portion of 2006.

Adjusted EBITDAR was $66.9 million in 2006 compared to $60.0 million in 2005. As a percent of revenue, adjusted EBITDAR for 2006 declined to 29.0% compared to 29.3% in 2005.

Adjusted EBITDAR increased for the same reasons as described above in the adjusted EBITDA plus an additional $1.4 million for the full year impact of leases related to Extendicare's acquisition of ALC.

See attached tables for definitions of adjusted EBITDA and adjusted EBITDAR and reconciliations of net income to adjusted EBITDA and adjusted EBITDAR.

Pro Forma years ended December 31, 2006 and 2005

Pro forma revenue from continuing operations increased $12.3 million, or 5.7%, to $226.6 million for 2006 from $214.3 million in 2005.

Increased pro forma revenue for 2005 was primarily due to increased average daily revenue rate as a result of rate increases and ALC's efforts to improve private pay mix. Revenue in 2006 and 2005 was aided by $1.2 million and $2.5 million, respectively, associated with the amortization of below market leases from Extendicare's acquisition of ALC. Amortization of the below market leases will end in January 2007. In addition, 2006 includes $0.4 million of revenue from leasing ALC's recently purchased corporate office. ALC is expected to continue to collect rent on the corporate office until June 2007. Adjusting 2006 to eliminate the amortization of below market leases and the rental income associated with the corporate office, pro forma revenues on an adjusted basis increased by 6.2% over 2005. Other revenue increases resulted from three newly constructed residences opened in 2005 and 2006 (approximately 150 units), additions to four existing facilities (112 units), and an increase in average rates, partially offset by lower occupancy percentages.

Pro forma adjusted EBITDA was $51.9 million in the 2006 year compared to $47.5 million in 2005. As a percent of revenue, pro forma adjusted EBITDA for 2006 increased to 22.9% compared to 22.2% in 2005.

Increased pro forma adjusted EBITDA was primarily due the revenue increases described above, partially offset by ongoing general and administrative expenses resulting from increases in salaries and benefits, informational systems contractual costs, increased accounting related services, charges for services provided by Extendicare, and other items related to ALC operating as an independent company for a portion of 2006.

Pro forma adjusted EBITDAR was $66.1 million in 2006 compared to $61.8 million in 2005. As a percent of revenue, pro forma adjusted EBITDAR for the 2006 year increased to 29.2% compared to 28.8% in the 2005 year.

Pro forma adjusted EBITDAR increased for the same reasons as described above in the pro forma adjusted EBITDA discussion.

See attached tables for definitions of adjusted EBITDA and adjusted EBITDAR and reconciliation of net income to pro forma net income and pro forma net income to pro forma adjusted EBITDA and pro forma adjusted EBITDAR.

ALC's average daily revenue rate per unit increased 7.2% to $87.47 in the 2006 year from $81.63 in 2005. ALC's overall average occupied units decreased 0.8% to 7,049 in 2006 from 7,103 in 2005. Private pay residents average occupied units increased by 0.4% while Medicaid average occupied units declined by 3.6% as compared to 2005. The decline in the number of Medicaid residents is consistent with ALC's strategy to move towards a higher private pay mix. For 2006, average occupancy decreased to 85.2% from 87.5% in 2005.

Discontinued Operations

Losses from discontinued operations in the year ended December 31, 2006 of $1.5 million resulted from ALC's decision to close poorly performing assisted living residences in Oregon (45 units) and Texas (60 units) and not to renew a lease at a facility in Washington (63 units).

Expansion Plans

Beginning in March, 2007 we intend to add 20 units each to 20 of our existing owned buildings (a total of 400 units). The expansion is expected to take approximately 12 months to complete construction and an additional 12 months to stabilize occupancy at the expanded residences. Existing residents at the selected properties are not expected to be impacted. We expect our cost to be approximately $125,000 per additional unit for a total of $50 million. This unit cost includes the addition of common areas such as media rooms, family gathering areas and other practical attractive areas to further enhance the residents' experiences in all parts of the house. Our process of selecting buildings for the expansion consisted of identifying what we believe to be our best performing buildings as determined by factors such as current occupancy, strength of the local management team, private pay mix of the current population, and demographic trends for the area. "The expansion units are expected to produce a strong return on capital," states Ms. Bebo, "and further improve the existing high margins on these buildings."

About Us

Assisted Living Concepts, Inc. of Milwaukee, Wisconsin, separated from Extendicare Inc. on November 10, 2006 and is an operator of assisted living residences in the United States. ALC and its subsidiaries operate 207 assisted living residences with capacity for over 8,300 residents in 17 states. ALC's assisted living facilities typically consist of 35 to 60 units and offer residents a supportive, home-like setting and assistance with the activities of daily living. ALC employs approximately 4,500 people.

ALC has scheduled a conference call on Wednesday, February 28, 2007 at 10:00 a.m. (ET) to discuss its financial results for the fourth quarter. The toll-free number for the live call is 800-475-4971; the passcode is 8902807, and the leader name is Laurie Bebo. A taped rebroadcast will be available approximately one hour following the live call until midnight on March 30, 2007. To access the rebroadcast of the call, click on the Investor Relations section of ALC's website: www.alcco.com.

The attached statements reflect certain reclassifications to the prior period figures to conform to the 2006 presentation.

Forward-looking Statements

Statements contained in this release other than statements of historical fact, including statements regarding anticipated financial performance, business strategy and management's plans and objectives for future operations including managements expectations about its expansion plans, are forward-looking statements. These forward-looking statements can be identified as such because the statements generally include words such as "expect," "intend," "will," "anticipate," "believe," "estimate," "plan," "strategy" or "objective" or other similar expressions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. In addition to the risks and uncertainties related to these statements, other risks and uncertainties are identified in ALC's filings with United States Securities and Exchange Commissions and include, but are not limited to, the following: changes in the health care industry in general and the long-term care industry in particular because of political and economic influences; changes in regulations governing the industry and ALC's compliance with such regulations; changes in government funding levels for health care services; resident care litigation, including exposure for punitive damage claims and increased insurance costs, and other claims asserted against ALC; ALC's ability to maintain and increase census levels; ALC's ability to attract and retain qualified personnel; the availability and terms of capital to fund ALC's capital expenditures; changes in competition; and demographic changes. Given these risks and uncertainties, readers are cautioned not to place undue reliance on ALC's forward-looking statements. All forward-looking statements contained in this report are necessarily estimates reflecting the best judgment of the party making such statements based upon current information, and ALC's assumes no obligation to update any forward-looking statement.

                     ASSISTED LIVING CONCEPTS, INC.
                    Consolidated Statements of Income
                (in thousands, except earnings per share)
                        Year Ended December 31,


                             Three Months Ended           Year Ended
                                 December 31,            December 31,
                              2006        2005        2006        2005
                           ----------- ----------- ----------- -----------
Revenues                   $    58,554 $    55,784 $   231,148 $   204,949
Expenses:
    Residence operations
     (exclusive of
     depreciation and
     amortization and
     residence lease
     expense shown below)       37,992      38,415     153,347     138,126
    General and
     administrative              3,001       1,288      10,857       6,789
    Residence lease
     expense                     3,702       3,464      14,291      12,852
    Depreciation and
     amortization                4,172       4,130      16,699      14,750
    Transaction costs              680          --       4,415          --
    Impairment of
     long-lived asset               --          --       3,080          --
                           ----------- ----------- ----------- -----------
          Total operating
           expenses             49,547      47,297     202,689     172,517
                           ----------- ----------- ----------- -----------
Income from operations           9,007       8,487      28,459      32,432
Other expense:
    Interest expense,
     net                        (1,489)     (2,123)     (9,197)    (11,603)
                           ----------- ----------- ----------- -----------

Income from continuing
 operations before income
 taxes                           7,518       6,364      19,262      20,829
Income tax expense              (2,919)     (2,590)     (8,727)     (8,119)
                           ----------- ----------- ----------- -----------
Net income from
 continuing operations           4,599       3,774      10,535      12,710
Loss from discontinued
 operations, net of taxes          (28)        (92)     (1,526)       (368)
                           ----------- ----------- ----------- -----------
Net income                 $     4,571 $     3,682 $     9,009 $    12,342
                           =========== =========== =========== ===========
Weighted average common
 shares:

Basic                           69,338      69,322      69,326      69,322

Diluted                         70,205      70,205      70,205      70,205
Per share data:
Basic earnings per common
 share:
    Income from continuing
     operations            $      0.07 $      0.05 $      0.15 $      0.18
    Loss from discontinued
     operations                     --          --       (0.02)         --
                           ----------- ----------- ----------- -----------
    Net income             $      0.07 $      0.05 $      0.13 $      0.18
                           =========== =========== =========== ===========
Diluted earnings per common
 share:
    Income from continuing
     operations            $      0.07 $      0.05 $      0.15 $      0.18
    Loss from discontinued
     operations                     --          -- $     (0.02)         --
                           ----------- ----------- ----------- -----------
    Net income             $      0.07 $      0.05 $      0.13 $      0.18
                           =========== =========== =========== ===========
Adjusted EBITDA(1)         $    13,859 $    12,617 $    52,653 $    47,182
                           =========== =========== =========== ===========
Adjusted EBITDAR(1)        $    17,561 $    16,081 $    66,944 $    60,034
                           =========== =========== =========== ===========


(1) See Non-GAAP Financial Measures


                     ASSISTED LIVING CONCEPTS, INC.
                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                          Year ended
                                                          December 31,
                                                      --------------------
                                                        2006       2005
                                                      ---------- ---------
OPERATING ACTIVITIES:
Net income                                            $   9,009  $  12,342
Adjustments to reconcile net income to net cash
 provided by operating activities:
     Depreciation and amortization                       16,699     14,920
     Amortization of purchase accounting adjustments
      for:
          Leases and debt                                  (527)      (663)
          Below market resident leases                   (1,187)    (2,488)
     Provision for bad debt                                 214        458
     Provision for self-insured liabilities                 415        795
     Payments of self-insured liabilities                  (271)      (371)
     Loss on impairment of long-lived assets and
      discontinued operations                             5,018         --
     Deferred income taxes                                  335      3,347
Changes in assets and liabilities:
     Accounts receivable                                 (1,258)    (1,079)
     Other assets                                            --          4
     Supplies, prepaid expenses and other current
      assets                                             (3,274)      (651)
     Accounts payable                                       107        764
     Accrued liabilities                                   (687)     3,010
     Income taxes payable/ receivable                      (999)     1,845
     Changes in other non-current assets                 (7,264)       110
     Other long-term liabilities                          2,649      2,525
Current due to stockholder and affiliates                    76     (3,471)
                                                      ---------- ---------
          Cash provided by operating activities          19,055     31,397

INVESTING ACTIVITIES:
     Payment for acquisitions                            (4,619)  (144,578)
     Cash balances in acquisitions                           --      6,522
     Payments for new construction projects              (3,338)   (15,198)
     Payments for purchases of property and equipment   (12,832)    (5,822)
     Proceeds from sales of property and equipment           79         --
                                                      ---------- ---------
         Cash used in investing activities              (20,710)  (159,076)

FINANCING ACTIVITIES:
     Capital contributions (distributions) from (to)
      Extendicare                                          (541)     9,521
     Capital contributions to ALC                        44,219    101,648
     Proceeds from debt to finance ALC acquisition           --     60,000
     Interest bearing advances from Extendicare to
      payoff debt                                            --     51,016
     Repayment of interest bearing advances to
      Extendicare                                       (25,200)    (3,798)
     Payments of long-term debt                          (2,312)   (84,388)
     Deferred financing fees                               (999)        --
                                                      ---------- ---------
          Cash provided by financing activities          15,167    133,999
                                                      ---------- ---------
Increase in cash and cash equivalents                    13,512      6,320
Cash and cash equivalents, beginning of year              6,439        119
                                                      ---------- ---------
Cash and cash equivalents, end of year                $  19,951  $   6,439
                                                      ========== =========



                     ASSISTED LIVING CONCEPTS, INC.
                      CONSOLIDATED BALANCE SHEETS

                                                          December 31,
                                                      ---------------------
                      ASSETS                             2006        2005
                                                      ---------------------
                                                         (In thousands
                                                        except share and
Current Assets:                                          per share data)
                                                      ---------------------
     Cash and cash equivalents                        $   19,951 $    6,439
     Investments                                           5,332         --
     Accounts receivable, less allowances of $1,086
      and $872 respectively                                5,395      4,351
     Supplies, prepaid expenses and other current
      assets                                               8,178      4,904
     Income tax receivable                                    90         --
     Deferred income taxes                                 1,552        392
     Due from Extendicare and affiliates:
          Deferred federal income taxes                       --        350
          Other                                               --         76
                                                      ---------- ----------
               Total current assets                       40,498     16,512
Property and equipment, net                              374,612    378,362
Goodwill and other intangible assets, net                 18,102     19,953
Restricted cash                                           10,947      3,975
Other assets                                               3,181      1,696
Net assets of discontinued operations                         --        199
                                                      ---------- ----------
               Total Assets                           $  447,340 $  420,697
                                                      ========== ==========
        LIABILITIES AND STOCKHOLDERS’ EQUITY AND PARENT’S INVESTMENT
Current Liabilities:
     Accounts payable                                 $    5,134 $    5,027
     Accrued liabilities                                  19,580     20,267
     Accrued state income taxes                               --        570
     Current maturities of long-term debt                  2,732      2,925
     Current portion of self-insured liabilities             300        300
                                                      ---------- ----------
          Total current liabilities                       27,746     29,089
     Accrual for self-insured liabilities                  1,171      1,027
     Long-term debt                                       87,904    128,601
     Deferred income taxes                                 5,146        814
     Other long-term liabilities                           8,535      7,181
     Due to Extendicare and affiliates:
          Deferred federal income taxes                       --      3,324
          Interest-bearing advances                           --     47,218
                                                      ---------- ----------
               Total Liabilities                         130,502    217,254
                                                      ---------- ----------
     Preferred stock, par value $0.01 per share,
      25,000,000 shares authorized, none issued or
      outstanding                                             --         --
     Series A Common Stock, par value $0.01 per
      share, 400,000,000 authorized, 59,501,918
      issued and outstanding                                 595         --
     Series B Common Stock, par value $0.01 per
      share, 75,000,000 authorized, 9,956,337
      issued and outstanding                                 100         --
     Additional paid-in capital                          313,474         --
     Accumulated other comprehensive income                  530         --
     Retained earnings                                     2,139         --
                                                                 ----------
          Parent’s Investment                                 --    203,443
                                                      ----------
          Total Stockholders’ Equity                     316,838         --
                                                      ---------- ----------
Total Liabilities and Stockholders’ Equity and
 Parent’s Investment                                  $  447,340 $  420,697
                                                      ========== ==========



                     ASSISTED LIVING CONCEPTS, INC.
                   Financial and Operating Statistics


                                 Three months ended       Year ended
Actual                              December 31,          December 31,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------
  Average Occupied Units by
   Payer Source (all continuing
   residences)
  Private                           5,232      5,129      5,167      5,195
  Medicaid                          2,016      2,149      2,058      2,138
                                ---------  ---------  ---------  ---------
  Total                             7,248      7,278      7,225      7,333
                                =========  =========  =========  =========

  Percent of Occupancy by Payer
   Source (all continuing
   residences)
  Private                            72.2%      70.5%      71.5%      70.8%
  Medicaid                           27.8%      29.5%      28.5%      29.2%

  Percent of Revenue by Payer
   Source (all continuing
   residences)
  Private                            79.6%      77.5%      79.0%      77.3%
  Medicaid                           20.4%      22.5%      21.0%      22.7%

  Average Revenue per Occupied
   Unit Day by Payer Source
  Private                       $   96.19  $   90.53  $   96.20  $   89.82
  Medicaid                      $   64.03  $   62.79  $   64.11  $   62.30
  Combined                      $   87.24  $   82.34  $   87.06  $   81.63

Occupancy Percentage (all
 continuing residences)              86.4%      85.8%      85.0%      87.5%



Pro Forma                                                    Year ended
                               Three months ended           December 31,
                         -------------------------------  ----------------
                         December   September  December
                         31, 2006   30, 2006   31, 2005     2006     2005
                         ---------  ---------  ---------  -------  -------
Average Occupied Units
 by Payer Source (all
 continuing residences)
Private                      5,163      5,063      4,932    5,012    4,990
Medicaid                     2,005      2,035      2,123    2,037    2,113
                         ---------  ---------  ---------  -------  -------
Total                        7,168      7,098      7,055    7,049    7,103
                         =========  =========  =========  =======  =======

Percent of Occupancy by
 Payer Source (all
 continuing residences)
Private                       72.0%      71.3%      69.9%    71.1%    70.3%
Medicaid                      28.0%      28.7%      30.1%    28.9%    29.7%

Percent of Revenue by
 Payer Source (all
 continuing residences)
Private                       79.5%      78.6%      77.1%    78.8%    77.3%
Medicaid                      20.5%      21.4%      22.9%    21.2%    22.7%

Average Revenue per
 Occupied Unit Day by
 Payer Source
Private                  $   96.54  $   96.51  $   91.35  $ 96.90  $ 89.15
Medicaid                 $   64.13  $   65.55  $   62.97  $ 64.29  $ 62.21
Combined                 $   87.48  $   87.63  $   82.81  $ 87.47  $ 81.37
Occupancy Percentage
 (all continuing
 residences)                  86.4%      85.8%      85.9%    85.2%    87.3%
Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDAR

Adjusted EBITDA is defined as net income from continuing operations before income taxes, interest expense net of interest income, depreciation and amortization, transaction costs and non-cash, non-recurring gains and losses, including disposal of assets and impairment of long-lived assets and loss on refinancing and retirement of debt. Adjusted EBITDAR is defined as adjusted EBITDA before rent expenses incurred for leased assisted living properties. Adjusted EBITDA and adjusted EBITDAR are not measures of performance under accounting principles generally accepted in the United States of America, or GAAP. We use adjusted EBITDA and adjusted EBITDAR as key performance indicators and adjusted EBITDA and adjusted EBITDAR expressed as a percentage of total revenues as a measurement of margin.

We understand that adjusted EBITDA and adjusted EBITDAR, or derivatives thereof, are customarily used by lenders, financial and credit analysts, and many investors as a performance measure in evaluating a company's ability to service debt and meet other payment obligations or as a common valuation measurement in the long-term care industry. Moreover, ALC's revolving credit facility contains covenants in which a form of EBITDA is used as a measure of compliance, and we anticipate EBITDA will be used in covenants in any new financing arrangements that we may establish. We believe adjusted EBITDA and adjusted EBITDAR provide meaningful supplemental information regarding our core results because these measures exclude the effects of non-operating factors related to our capital assets, such as the historical cost of the assets.

We report specific line items separately, and exclude them from adjusted EBITDA and adjusted EBITDAR because such items are transitional in nature, and would otherwise distort historical trends. In addition, we use adjusted EBITDA and adjusted EBITDAR to assess our operating performance and in making financing decisions. In particular, we use adjusted EBITDA and adjusted EBITDAR in analyzing potential acquisitions and internal expansion possibilities. Adjusted EBITDA and adjusted EBITDAR performance are also used in determining compensation levels for our senior executives. Adjusted EBITDA and adjusted EBITDAR should not be considered in isolation or as a substitute for net income, cash flows from operating activities, and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity. We present adjusted EBITDA and adjusted EBITDAR on a consistent basis from period to period, thereby allowing for comparability of operating performance.

Adjusted EBITDA and Adjusted EBITDAR Reconciliation Information

The following table sets forth a reconciliation of net income to adjusted EBITDA and adjusted EBITDAR (in thousands):

                                        Three Months Ended   Year Ended
                                          December 31,      December 31,
                                        ----------------- -----------------
                                          2006     2005     2006     2005
                                        -------- -------- -------- --------

Net income                              $  4,571 $  3,682 $  9,009 $ 12,342
Loss from discontinued operations, net
 of tax benefit                               28       92    1,526      368
Provision for income taxes                 2,919    2,590    8,727    8,119
                                        -------- -------- -------- --------

Income from continuing operations
 before income taxes                       7,518    6,364   19,262   20,829
Add:
   Depreciation and amortization           4,172    4,130   16,699   14,750
   Interest expense, net                   1,489    2,123    9,197   11,603
   Transaction costs                         680       --    4,415       --
   Loss on impairment of long-lived
    assets                                    --       --    3,080       --
                                        -------- -------- -------- --------

Adjusted EBITDA                           13,859   12,617   52,653   47,182
Add: Lease expense                         3,702    3,464   14,291   12,852
                                        -------- -------- -------- --------

Adjusted EBITDAR                        $ 17,561 $ 16,081 $ 66,944 $ 60,034
                                        ======== ======== ======== ========
The following table sets forth the calculations of adjusted EBITDA and adjusted EBITDAR percentages (in thousands except percentages):
                                 Three Months Ended        Year Ended
                                    December31,           December 31,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------

Revenues                        $  58,554  $  55,784  $ 231,148  $ 204,949
                                ---------  ---------  ---------  ---------

Adjusted EBITDA                 $  13,859  $  12,617  $  52,653  $  47,182
                                ---------  ---------  ---------  ---------

Adjusted EBITDAR                $  17,561  $  16,081  $  66,944  $  60,034
                                ---------  ---------  ---------  ---------

Adjusted EBITDA as percent of
 total revenue                       23.7%      22.6%      22.8%      23.0%
                                ---------  ---------  ---------  ---------

Adjusted EBITDAR as percent of
 total revenue                       30.0%      28.8%      29.0%      29.3%
                                ---------  ---------  ---------  ---------




                      Assisted Living Concepts, Inc.
            Pro Forma and Non-GAAP Reconciliation Information
              (in thousands, except earnings per share data)



                                               Three Months Ended
                                               December 31, 2006
                                     -------------------------------------
                                       Actual     Adjustments   Pro Forma

Revenues                             $    58,554  $   (489)(A) $    58,065
                                     -----------  -----------  -----------

Expenses:
   Residence operations (exclusive
    of depreciation and amortization
    and residence lease expense
    shown below)                          37,992      (436)(A)      37,556
   General and administrative              3,001           --        3,001
   Residence lease expense                 3,702           --        3,702
   Depreciation and amortization           4,172          (30)       4,142
   Transaction costs                         680           --          680
                                     -----------  -----------  -----------
      Total operating expenses            49,547         (466)      49,081
                                     -----------  -----------  -----------
Income from operations                     9,007          (23)       8,984
Other expense:
   Interest expense, net                  (1,489)           1       (1,488)
                                     -----------  -----------  -----------
Income from continuing operations
 before income taxes                       7,518          (22)       7,496
   Income tax expense                      2,919           (9)(C)    2,910
                                     -----------  -----------  -----------
Income from continuing operations          4,599          (13)       4,586
                                     -----------  -----------  -----------
Loss from discontinued operations,
 net of tax                                  (28)          28           --
                                     -----------  -----------  -----------
Net income                                 4,571           15        4,586
                                     -----------  -----------  -----------
Non recurring charges:
   Transaction fees                          680           --          680
Income tax benefit on transaction
 fees                                       (281)          --         (281)
                                     -----------  -----------  -----------
Net income excluding one time
 charges                             $     4,970  $        15  $     4,985
                                     ===========  ===========  ===========

Net income from continuing
 operations excluding one time
 charges                             $     4,998  $       (13) $     4,985
                                     ===========  ===========  ===========
Pro forma basic weighted average
 shares (D)                               69,338           --       69,338
Pro forma diluted weighted average
 shares (D)                               70,205           --       70,205
Adjusted EBITDA                      $    13,859  $       (53) $    13,806
                                     ===========  ===========  ===========
Adjusted EBITDAR                     $    17,561  $       (53) $    17,508
                                     ===========  ===========  ===========
Basic pro forma earnings per
 share(E)                                                      $      0.07
                                                               ===========
Diluted pro forma earnings per share
 (E)                                                           $      0.07
                                                               ===========




                                               Three Months Ended
                                               December 31, 2005
                                     -------------------------------------
                                       Actual     Adjustments   Pro Forma

Revenues                             $    55,784  $ (1,382)(A) $    54,402
                                     -----------  -----------  -----------

Expenses:
   Residence operations (exclusive
    of depreciation and amortization
    and residence lease expense
    shown below)                          38,415    (1,182)(A)      37,233
   General and administrative              1,288           --        1,288
   Residence lease expense                 3,464           (1)       3,463
   Depreciation and amortization           4,130         (189)       3,941
   Transaction costs                          --           --           --
                                     -----------  -----------  -----------
      Total operating expenses            47,297       (1,372)      45,925
                                     -----------  -----------  -----------
Income from operations                     8,487          (10)       8,477
Other expense:
   Interest expense, net                  (2,123)          22       (2,101)
                                     -----------  -----------  -----------
Income from continuing operations
 before income taxes                       6,364           12        6,376
   Income tax expense                      2,590            5        2,595
                                     -----------  -----------  -----------
Income from continuing operations          3,774            7        3,781
                                     -----------  -----------  -----------
Loss from discontinued operations,
 net of tax                                  (92)          92           --
                                     -----------  -----------  -----------
Net income                                 3,682           99        3,781
                                     -----------  -----------  -----------
Non recurring charges:
   Transaction fees                           --           --           --
Income tax benefit on transaction
 fees                                         --           --           --
                                     -----------  -----------  -----------
Net income excluding one time
 charges                             $     3,682  $        99  $     3,781
                                     ===========  ===========  ===========

Net income from continuing
 operations excluding one time
 charges                             $     3,774  $         7  $     3,781
                                     ===========  ===========  ===========
Pro forma basic weighted average
 shares (D)                               69,322           --       69,322
Pro forma diluted weighted average
 shares (D)                               70,205           --       70,205
Adjusted EBITDA                      $    12,617  $      (199) $    12,418
                                     ===========  ===========  ===========
Adjusted EBITDAR                     $    16,081  $      (200) $    15,881
                                     ===========  ===========  ===========
Basic pro forma earnings per
 share(E)                                                      $      0.05
                                                               ===========
Diluted pro forma earnings per share
 (E)                                                           $      0.05
                                                               ===========




                      Assisted Living Concepts, Inc.
        Pro Forma and Non-GAAP Measures Reconciliation Information
              (in thousands, except earnings per share data)




                                                  Year Ended
                                              December 31,  2006
                                        -------------------------------
                                                                  Pro
                                         Actual   Adjustments    Forma

Revenues                                $231,148  $ (4,518)(A) $226,630
                                        --------  -----------  --------
Expenses:
   Residence operations (exclusive of
    depreciation and amortization and
    residence lease expense shown
    below)                               153,347    (3,718)(A)  149,629
   General and administrative             10,857           --    10,857
   Residence lease expense                14,291           --    14,291
   Depreciation and amortization          16,699         (576)   16,123
   Transaction costs                       4,415           --     4,415
   Impairment of long-lived assets         3,080           --     3,080
                                        --------  -----------  --------
      Total operating expenses           202,689       (4,294)  198,395
                                        --------  -----------  --------
Income from operations                    28,459         (224)   28,235
Other expense:
Interest expense, net                     (9,197)          21    (9,176)
                                        --------  -----------  --------
Income from continuing operations
 before income taxes                      19,262         (203)   19,059
   Income tax expense                      8,727          (81)(C) 8,646
                                        --------  -----------  --------
Income from continuing operations         10,535         (122)   10,413
                                        --------  -----------  --------
Loss from discontinued operations, net
 of tax                                   (1,526)       1,526        --
                                        --------  -----------  --------
Net income                                 9,009        1,404    10,413
                                        --------  -----------  --------
Non recurring charges:
   Transaction fees                        4,415           --     4,415
   Non cash loss on impairment of long
    lived assets                           3,080           --     3,080
Income tax benefit on loss on
 impairment of long lived assets and
 transaction fees                         (1,630)          --    (1,630)
                                        --------  -----------  --------

Net income excluding one time charges
 and a non-cash charge                  $ 14,874  $     1,404  $ 16,278
                                        ========  ===========  ========
Net income (loss) from continuing
 operations excluding one time charges
 and a non-cash charge                  $ 16,400  $      (122) $ 16,278
                                        ========  ===========  ========
Pro forma basic weighted average shares
 (D)                                      69,326           --    69,326
Pro forma diluted weighted average
 shares (D)                               70,205           --    70,205
Adjusted EBITDA                         $ 52,653  $      (800) $ 51,853
                                        ========  ===========  ========
Adjusted EBITDAR                        $ 66,944  $      (800) $ 66,144
                                        ========  ===========  ========
Basic pro forma earnings per share (E)                         $   0.23
                                                               ========
Diluted pro forma earnings per share
 (E)                                                           $   0.23
                                                               ========




                                                    Year Ended
                                                December 31, 2005
                                        ----------------------------------
                                                                     Pro
                                          Actual     Adjustments    Forma

                                                        15,102(B)
Revenues                                $   204,949  $ (5,707)(A) $214,344
                                        -----------  -----------  --------
Expenses:
   Residence operations (exclusive of
    depreciation and amortization and
    residence lease expense shown                       11,078(B)
    below)                                  138,126    (4,571)(A)  144,633
   General and administrative                 6,789      1,163(B)    7,952
   Residence lease expense                   12,852      1,362(B)   14,214
   Depreciation and amortization             14,750        177(B)   14,927
   Transaction costs                             --           --        --
   Impairment of long-lived assets               --           --        --
                                        -----------  -----------  --------
      Total operating expenses              172,517        9,209   181,726
                                        -----------  -----------  --------
Income from operations                       32,432          186    32,618
Other expense:
 Interest expense, net                      (11,603)        (730)  (12,333)
                                        -----------  -----------  --------
Income from continuing operations
 before income taxes                         20,829         (544)   20,285
   Income tax expense                         8,119         (210)(C) 7,909
                                        -----------  -----------  --------
Income from continuing operations            12,710         (334)   12,376
                                        -----------  -----------  --------
Loss from discontinued operations, net
 of tax                                        (368)         368        --
                                        -----------  -----------  --------
Net income                                   12,342           34    12,376
                                        -----------  -----------  --------
Non recurring charges:
   Transaction fees                              --           --        --
   Non cash loss on impairment of long
    lived assets                                 --           --        --
Income tax benefit on loss on
 impairment of long lived assets and
 transaction fees                                --           --        --
                                        -----------  -----------  --------

Net income excluding one time charges
 and a non-cash charge                  $    12,342  $        34  $ 12,376
                                        ===========  ===========  ========
Net income (loss) from continuing
 operations excluding one time charges
 and a non-cash charge                  $    12,710  $      (334) $ 12,376
                                        ===========  ===========  ========
Pro forma basic weighted average shares
 (D)                                         69,322           --    69,322
Pro forma diluted weighted average
 shares (D)                                  70,205           --    70,205
Adjusted EBITDA                         $    47,182  $       363  $ 47,545
                                        ===========  ===========  ========
Adjusted EBITDAR                        $    60,034  $     1,725  $ 61,759
                                        ===========  ===========  ========
Basic pro forma earnings per share (E)                            $   0.18
                                                                  ========
Diluted pro forma earnings per share
 (E)                                                              $   0.18
                                                                  ========
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ASSISTED LIVING CONCEPTS, INC.

The pro forma adjustments included in the unaudited pro forma condensed combined financial information are as follows:

(A) To remove operations (including related depreciation and amortization and lease costs) of three discontinued assisted living facilities (168 units) and two free-standing EHSI assisted living facilities (141 units) and another 129 assisted living units contained within skilled nursing facilities were not transferred to ALC. These assets and operations are included in the historical statements of income through November 10, 2006.

(B) To add the results of operations of ALC for the month of January 2005, including pro forma amortization of purchase accounting adjustments and lease costs. The historical statement of income for the year ended December 31, 2005 includes operations of ALC beginning February 1, 2005, the day after ALC was acquired by Extendicare.

(C) To reflect the income tax effect of the other pro forma adjustments at applicable income tax rates.

(D) The basic weighted average shares of common stock was determined from the number of outstanding Subordinate Voting Shares of Extendicare on the separation date, November 10, 2006, which would have approximated the number of outstanding shares of Class A common stock, and the number of outstanding Multiple Voting Shares of Extendicare for the applicable periods, which would have approximated the number of outstanding shares of Class B common stock. For purposes of determining the diluted weighted average shares, the Multiple Voting Shares were deemed to have been converted into Subordinate Voting Shares at the 1 to 1.075 conversion ratio applicable to the Class B common stock. This conversion feature resulted in an additional 0.9 million shares included in the diluted weighted average shares outstanding.

(E) Pro forma earnings per share represent pro forma earnings from continuing operations before the net impact of transaction fees and the non cash loss on impairment of long lived assets.

Pro Forma adjusted EBITDA and adjusted EBITDAR

The following table sets forth a reconciliation of pro forma net income to adjusted EBITDA and adjusted EBITDAR:


                                       Three Months Ended    Year Ended
                                          December 31,      December 31,
                                        ----------------- -----------------
(In thousands):                           2006     2005     2006     2005
                                        -------- -------- -------- --------

Pro forma net income                    $  4,586 $  3,781 $ 10,413 $ 12,376
Pro forma provision for income taxes       2,910    2,595    8,646    7,909
                                        -------- -------- -------- --------

Pro forma income from continuing
 operations before income taxes            7,496    6,376   19,059   20,285
Add:
   Pro forma depreciation and
    amortization                           4,142    3,941   16,123   14,927
   Pro forma interest expense, net         1,488    2,101    9,176   12,333
   Pro forma transaction costs               680       --    4,415       --
   Pro forma loss on impairment of
    long-lived assets                         --       --    3,080       --
                                        -------- -------- -------- --------

Pro forma adjusted EBITDA                 13,806   12,418   51,853   47,545
Add: Pro forma lease expense               3,702    3,463   14,291   14,214
                                        -------- -------- -------- --------

Pro forma adjusted EBITDAR              $ 17,508 $ 15,881 $ 66,144 $ 61,759
                                        ======== ======== ======== ========

The following table sets forth the pro forma calculations of adjusted EBITDA and adjusted EBITDAR percentages:



(in thousands except             Three Months Ended        Year Ended
 percentages):                      December 31,          December 31,
                                --------------------  --------------------
                                  2006       2005       2006       2005
                                ---------  ---------  ---------  ---------

Pro forma revenues              $  58,065  $  54,402  $ 226,630  $ 214,344
                                ---------  ---------  ---------  ---------

Pro forma adjusted EBITDA       $  13,806  $  12,418  $  51,853  $  47,545
                                ---------  ---------  ---------  ---------

Pro Forma adjusted EBITDAR      $  17,508  $  15,881  $  66,144  $  61,759
                                ---------  ---------  ---------  ---------

Pro Forma adjusted EBITDA as
 percent of total pro forma
 revenue                             23.8%      22.8%      22.9%      22.2%
                                ---------  ---------  ---------  ---------

Pro forma adjusted EBITDAR as
 percent of total pro forma
 revenue                             30.2%      29.2%      29.2%      28.8%
                                ---------  ---------  ---------  ---------

Contact Information

  • For further information, contact:
    Assisted Living Concepts, Inc.
    John Buono
    Sr. Vice President, Chief Financial Officer and Treasurer
    Phone: (414) 908-8160
    Fax: (414) 908-8212
    Email: Email Contact
    Visit ALC's Website @ www.alcco.com